Laid Off Workers Eligible for Subsidy to Help Pay Health Insurance Premiums

The American Recovery and Reinvestment Act of 2009 (known as
the "Stimulus Act"), provides a unique benefit for recently released workers wanting
to maintain their health insurance coverage. "As many people face unexpected
layoffs in this difficult economic environment, health coverage becomes a huge
concern for unemployed individuals and their families," says Jim Van Grevenhof,
Senior Tax Analyst with Thomson Reuters. "The government subsidy for COBRA
continuation payments included in the Stimulus Act helps to ease that worry."

Group health plans maintained by employers that have at
least twenty employees are required to offer certain employees and their
dependents the opportunity to continue to participate in the group health plan
for up to eighteen months after leaving the company. To help employees afford the COBRA
continuation coverage during their period of unemployment, the Stimulus Act provides
for a 65% government subsidy (in the form of a tax credit) for COBRA
continuation payments for up to nine months to Assistance Eligible Individuals
(AEIs) for periods of coverage beginning on or after February 17, 2009. The
remaining 35% is paid by the AEI. An AEI is an employee (and COBRA-eligible
family members) whose employment has been involuntarily terminated between
September 1, 2008 and December 31, 2009, and who elects COBRA coverage.

During this period of economic uncertainty, the COBRA premium
subsidy represents a timely tax-free benefit for many taxpayers. However, this
subsidy can be taxable to high-income individual and joint filers. For these taxpayers, the tax-free aspect
begins to phase out for individuals with a modified adjusted gross income (AGI)
of $125,000 ($250,000 for joint filers) and is completely phased out when their
modified AGI reaches $145,000 ($290,000 for joint filers).

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Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.